Pandora Media (NYSE:P) stock is up 18% after the Copyright Royalty Board, or CRB, hiked u.s. music webcasting recording royalty rates. While the stock movement might appear strange at first glance, some perspective will help to shed some light into the situation. Pandora and Music royalty collector SoundExchange had differed greatly over a fair rate to charge as royalty for subscription and non-subscription (ad-supported) music. Pandora requested CRB to fix royalty rates for subscription per-performance music rates at $0.00215 to $0.00240 and $0.00110 to $0.00129 for non-subscription music. Meanwhile SoundExchange wanted CRB to fix the per-performance rate at a much higher level of $0.0025 to $0.0029.

The CRB seems to have found a middle ground between requests by Pandora and SoundExchange. The CRB has raised the rates for non-subscription music from $0.0014 to $0.0017 while lowering rates for subscription music from $0.0025 per performance to $0.0022, effectively increasing the blended rate from $0.00153 per performance to $0.00176, or about a 15% increase. These rates will apply in 2016 and will be adjusted as the years roll on on the basis of inflation calculated as per the Consumer Price Index.

Pandora stock 5-Day Returns

Source: CNN money

The decision by the CRB helps to remove a long-standing source of uncertainty for Pandora investors. The fact that the CRB will be adjusting future royalties based on Consumer Price Index also comes as a welcome reprieve for Pandora Media since the YoY increase is likely to be much lower than the current rate of 9% the company has been accounting for using its current structure.